Monday, November 24, 2014

What is safe to borrow

Welcome to our blog, Menfranco general blog
and this post, what is safe to borrow

This could be a house for sale, so you would like to work it out if you can afford it.

Working and reworking what is safe to borrow
So, let us see now, how much money would be safe to borrow and what we should know and keep in mind when we work it out what we can borrow safely. As I have already mentioned above, when the banks were really strict you had to have about ¼ of the cost of the house, and you should have been able to pay the monthly payments by using one quarter of your wages that you took home. This formula is what you may have to take as a bench mark to check how safe is to borrow money, but then this formula might be too strict for some of us, you see most time it depends how much money you are able to earn and save, so the formula that I have written is only a general way of working it out. What we need to keep in mind is this; we should ask ourselves whether what we are buying is worth the risk we take, keeping in mind that sometimes something might go wrong.
Anyhow, today some of the lenders are happy if you have 10% deposit of the total cost of the house, and the buyers that borrow money should really work out if they can afford to pay back what they are borrowing; we know that most of the lender will not loan you money if you have no chance at all of paying it back, but at the same time they are not extra careful as they used to be and they take their own chances, hoping for the best outcome.
So, buyers beware if you haven’t a large enough deposit, because you are going to need a bigger loan to buy your house, and therefore a bigger monthly repayment. Now if you have a very good job and you earn enough money to repay the loan, it might still work out well, but at the same time you have to remember that this is also going to cost you a lot more to repay the loan in full; and also remember it is worth to play it safe, so do your maths before you buy, work and rework out what you can afford. In order to help you the buyer, we are going to write here a few examples about what the loan might cost you, so that we would be able to compare the outcome.
So let us assume that Mr. X is borrowing $300,000 dollars to buy a house. The Banks will loan this money say on a 5% interest, this is what the actual bank is charging, but we should work on 5.5% just to cover also the hidden costs that are not shown at first sight.
Just let us make it very simple to understand to the people that are borrowing money for the first time and let us use just round figure. For $300,000 loan at 5% the interest for the first year will be about $15,000, now you have to pay a bit more than that for you to start repaying the capital to the bank, so, let us say another $5,000 or there about. So it is obvious that you need at least $20,000 per year to pay back the bank the first year; which will be a bit less than $1,700 per month, here the question arise can Mr. X afford that easily?
Mr X must make sure that he can afford it and has also to keep in mind that when you own a house there are other expenses, like: insurance, the local authority taxes, water supply, power and other services that are needed over the time you are living in your house. There is also maintenance to budget about, you see soon or later you are going to do something to maintain the house in good conditions and there are many other things to consider. So make sure that it can be done, or at least believe that you can afford it.                                           
These are the main issues that any buyer should look for, and what we have written above is only a general way of working out if it is convenient for you to buy your own house.
We hope that this information could help any of our readers?
That is all for the time being.   


This is: 
Menfranco general blog, 
Hhat is safe to borrow
Next time with, another post about buildings. 
Some personal and religious links: 

No comments: